Article citationsMore>>

D. Belomestny, A. Kolodko and J. Schoenmakers, “Pricing Spreads in the Libor Market Model,” Weierstrass Institute for Applied Analysis and Stochastics, Berlin, 2008.

has been cited by the following article:

• TITLE: On Valuing Constant Maturity Swap Spread Derivatives

  AUTHORS: Leonard Tchuindjo

  KEYWORDS: CMS Spread; Market Model; Brownian Motion; Forward Measure

  JOURNAL NAME: Journal of Mathematical Finance, Vol.2 No.2, May 23, 2012

  ABSTRACT: Motivated by statistical tests on historical data that confirm the normal distribution assumption on the spreads between major constant maturity swap (CMS) indexes, we propose an easy-to-implement two-factor model for valuing CMS spread link instruments, in which each forward CMS spread rate is modeled as a Gaussian process under its relevant measure, and is related to the lognormal martingale process of a corresponding maturity forward LIBOR rate through a Brownian motion. An illustrating example is provided. Closed-form solutions for CMS spread options are derived.